Principal at farrelly’s Investment Strategy
Over the ten years to 31 August 2016, the All Ordinaries Index rose from 5079 .8 to 5529.4 That’s just 0.9% pa. Horrible? Not really, add in dividends of 4.4% pa and we get a 5.3%pa return– a touch less than government bonds over the period. (A government bond bought ten years ago at a 5.8% yield will have delivered a return of exactly 5.8%pa; who would have guessed?)
Of course, that’s not the end of the story, we need to include imputation credits of around 1.5%pa which take the total return to 6.8%pa over the past decade. We are now poking our heads above bond returns, if only by a little.
In real terms that all adds up to a return of 4.5%pa – of which a full third came from imputation credits. They really do make a difference.
So what? A large part of the investment community seems to think that imputation credits don’t matter. Take those preparing performance tables for a start. The returns shown don’t include imputation credits. And if they don’t show up in the tables, we suspect that they don’t factor too heavily into fund manager thinking either. They should. Imputation credits are hugely important for investors – they should be just as important for those entrusted with managing those investors’ money.